The move comes after government expressed concerns over large haircuts and delays in resolution under the Insolvency & Bankruptcy Code and directed lenders to build an effective framework for monitoring the progress of legal processes. Since the roll out of IBC in 2016, creditors have recovered 32.6% of their admitted claims against large, stressed firms.
“If there are shortcomings on the part of the legal counsel or they have committed lapses due to which banks have to suffer, we will initiate steps to blacklist them,” said a bank executive aware of the matter. The Centre has already asked managing directors of state-run banks to review the top 20 cases being dealt with under the IBC on a monthly basis to ensure there are no delays.
Another banker said that this will ensure that the legal counsel engaged by lenders will be more aggressive in their approach. “Our focus areas are that there should not be delays in the admission of corporate insolvency resolution process (CIRP) applications and hastening of the legal process at NCLTs to reduce the delays,” he said.
Last month, finance minister Nirmala Sitharaman asked state-run banks to put greater effort into making recoveries from accounts declared fraudulent and wilful defaulters. Lenders were also asked to step up the acquisition of stressed accounts by government-sponsored National Asset Reconstruction Co Ltd (NARCL). Sitharaman also called for a performance review of counsel representing PSBs to ensure better legal outcomes. As per IBBI data, 67% of the insolvency cases where the resolution process was ongoing until September 2023 exceeded the 270-day time frame. Resolutions in another 13% of the cases went beyond 180 days but were still under 270 days.